Collapse of Jindal plan spawns unfunded schemes to phase out income tax

15th April 2013 · 0 Comments

By Tyler Bridges thelensnola.org

The death of Gov. Bobby Jindal’s sweeping tax swap plan – declared moribund by the governor during his short opening address to the Legislature on Monday – is breathing life into a more radical alternative: phasing out the state’s personal income tax without figuring out how to pay for the lost revenue.

Three House members are pushing bills that would end the personal income tax over five or 10 years and leave it up to lawmakers in the future to figure out how to pay the bill. In his speech Monday, Jindal seemed to put his weight behind the idea when he asked legislators to send him a bill that would gradually eliminate the state personal income tax but made no mention of his earlier insistence that the plan had to be “revenue-neutral,” balancing tax cuts with increases.

Advocates of the measure say eliminating the personal income tax would make Louisiana more attractive to residents and potential newcomers and would squeeze wasteful spending from state government.

But exactly how would the Legislature make up the loss of $2.7 billion currently collected annually from the tax on personal incomes?

“We’ll have 12 years to figure it out,” said state Rep. Alan Seabaugh, R-Shreveport, sponsor of a measure (House Bill 505) that would phase out the tax over 10 years beginning in 2016. “Let everybody know it’s coming, and we’ll work it out.”

State Rep. Hunter Greene, R-Baton Rouge, offering a 10-year phase-out beginning in 2014 (House Bill 271), made a similar argument.

“Instead of looking at a projection of how much we’ll need, we can use actual collections to see the gap,” Greene said. “We can then look at cuts in spending or look at finding other sources of revenue.”

State Rep. Barry Ivey, R-Central, has one measure phasing out the personal income tax over 10 years (House Bill 507) and another over five years (House Bill 632) that also contains special provisions for residents 65 and older.

The House’s most powerful member on tax matters dismissed the proposals.

“I just don’t believe that’s a prudent thing to do,” said state Rep. Joel Robideaux, R-Lafayette, who chairs Ways and Means, the House committee that handles tax legislation. “The budget is not stable enough to just take money out of it.”

Robideaux said he thought the House would not support phasing out the income tax without identifying how to pay for it, but, he added, enough legislators dislike the tax to leave the outcome uncertain.

The proposals also may not find favor with the Fiscal Hawks, a group of 30-35 House members – most of them conservative Republicans – who believe that lawmakers should focus on producing a budget without gimmicks and one-time spending.

“Unless people are willing to mothball state universities, we don’t know how we would pay for the loss of the income tax,” said state Rep. Gregory Miller, R-Destrehan.

Jan Moller, who heads the Louisiana Budget Project, a Baton Rouge-based group that favors higher taxes on the wealthy, called the phase-out plan “dangerous” and noted it needs only 53 votes for approval, versus 70 votes for the Jindal plan because it imposed some new taxes. “It’s a recipe for more [budget] shortfalls,” Moller said.

Exactly how hard Jindal would push for the measure is not yet clear. State Rep. Sam Jones, D-Franklin, noted that Jindal’s announcement Monday marks a reversal from his opposition to Greene’s proposal in 2011.

State Rep. Jerome “Dee” Ric­hard, a political independent from Thibodaux and a Fiscal Hawk, is also proposing to eliminate the state income tax but do it by eliminating all tax exemptions.

Two other lawmakers want to reduce but not eliminate the state’s income tax.

State Rep. Kirk Talbot, R-River Ridge, has a tax swap plan that would reduce personal income taxes, expand the state sales tax to some services (as Jindal proposed to do) but keep the state sales tax at four percent (compared to Jindal’s proposal to raise it to 6.25 percent).

Under Talbot’s plan (House Bill 586), the state income tax would drop to a flat rate of 1.9 percent, and he would exempt the first $12,500 from income, as under current law.

“My goal is to put more money into the hands of taxpayers so they can decide where their money goes,” Talbot said.

Consistent with most Republican tax plans, his proposal would provide its biggest benefits to those in the top income tax bracket. That could be an issue in a state where, according to the Institute on Taxation and Economic Policy, a liberal Washington, D.C.-based group, the poor pay a higher tax rate than the wealthy.

Talbot said he doesn’t want to raise the state sales tax rate because doing that would give Louisiana the highest average sales tax in the country, when you add local sales taxes.

Talbot’s plan would be revenue-neutral, as the expanded sales tax raises about $2 billion to offset a similar amount of revenue lost by moving to a lower flat income tax.

The Legislative Black Caucus is proposing a less sweeping proposal. Its package would:

• Raise the cigarette tax by 33 cents per pack to match the 69-cent rate in Mississippi (House Bill 623)

• No longer permit corporations to deduct their federal tax payment from their obligations to the state, a move that would require a statewide vote to change the state Constitution (House Bill 536).

State Rep. Katrina Jackson, D-Monroe, said the plan would raise $70 million per year overall for the state. The math: the tobacco tax would raise $154 million while corporate taxes would decline by $54 million and personal income tax revenue would drop by $30 million.

Jackson said that the plan would dedicate the $70 million to expanding health care for the poor under the federal Medicaid program, which has suffered in recent years from Jindal budget cuts. She said that the $70 million also would produce another $42 million a year in federal matching money, for a total increase of $112 million in annual spending for Medicaid.

“It’s a viable option and the right option,” Jackson said.

She said dropping the top corporate tax bracket from eight percent to six percent would make Louisiana more attractive to businesses because they typically look at the statutory rate when making investment decisions without worrying about exemptions.

She said that cutting personal income tax rates by .25 percent would improve Louisiana’s ranking relative to other states, as computed by the Tax Foundation — a metric Jindal cited repeatedly when he was pitching his plan.

This article originally published in the April 15, 2013 print edition of The Louisiana Weekly newspaper.